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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
The critical role of market pricing, salary structures and job leveling
Compensation plays a critical role in organizations ongoing and increasingly challenging
Market Pricing
Salary Structures
Job Leveling
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Sources: 2014 Towers Watson Global Workforce Study and 2014 Towers Watson Global Talent Management and Rewards Study
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Market Pricing
talent it needs
Overpaying, and wasting organizational resources or impeding desirable turnover
The secret is the ability to spot the imperfections and either eliminate them or
work around them
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
$$$$
Increased Cost
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Market pricing:
Informal/Formal
Individual/Team/Business
Unit/Organization
Compensation Information
External
Recruiting feedback
Final Pay
Decision
Communicate
with Employee
Internal equity
2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Step 2
Determine/confirm
relevant talent
market(s)
Identifying the
Determine
relevant talent
benchmark jobs. A
market for
benchmark job is a
benchmark jobs may
position you can
influence target
match to a survey
market position
job. They serve as
anchor points
A talent market is
where you
Definite job
compete for,
responsibilities/
recruit and lose
scope
employees
Understand job
Size
Job titles are
helpful indicators, Geography
but often
Talent market
camouflage
definitions will
organizationinform which data
specific variations
to gather and
whether any
differentials will
need to be applied
to survey data
Define relevant
survey scope cuts
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Step 3
Step 4
Step 5
Step 6
Identify data
sources
Sources of
compensation data:
Published surveys
Custom cuts of
published surveys
Custom surveys
Club surveys
Internet sites
Select survey
sources, different
sources are right for
different analyses
Compare your
selected surveys to
each other to ensure
elements are
compatible
Refresh your
knowledge of the
surveys and review
the surveys for
changes
Review regulatory/
contractual
requirements
Identify cases
where premiums
or discounts may
be appropriate
Gather
compensation data
Know what data
youre going to
need to pull, so
you pull the right
data the first time
Keep in mind pay
element
considerations,
there are a myriad of
different tax and
accounting
regulations in each
country that impact
how pay is provided
Apply premiums or
discounts
Understand your
data and how it will
be used
Consider compound
adjustments
Address nonbenchmark positions
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Salary Structures
Internal Equity
New Pay
Structure
Individual Contribution
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Wide
Grades
Broad Bands
Range Design
Description
Typical Range
Width
Midpoint
Differential
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Max of
Level #1
1
100% +
60 - 80%
30% - 50%
Approximate #
of Grades
3
1
Min of
Level #1
20 30
12 15
58
10% 15%
20% 35%
No Midpoints
2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Traditional/Narrow/Thin grade
Broad band
Hierarchical
Multiple layers
Many jobs/titles
Finite distinctions between
grades/bands
Flatter organization
Fewer levels/layers
Fewer jobs/titles
Centralized control
Focus on jobs more than
individual employees
Focus on promotion vs. career
growth
Internal equity
Greater emphasis on
managing labor costs
Decentralized control with greater
emphasis on line manager
accountability
Person based
Focus on career growth vs.
promotion
Externally focused
Flexible
Competency-based plans
Fewer, broader grades/bands
Flexible salary increase guidelines
Pay is a strategic lever used to
drive business objectives and
reinforce cultural norms
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Step 2
Review market rates
for benchmark jobs
Step 3
Determine range
midpoints and midpoint
progressions
Step 4
Determine range
spreads
Range spreads will vary
depending on the structure
chosen, the objectives they are
intended to support (e.g., career
paths, promotions, etc.) and the
types of positions in a level
Step 5
Calculate overlap
between ranges
Range overlap is a measure
of the difference in value of
positions in adjoining grades
Often driven by market data
and midpoint progressions
slope of pay opportunity
Degree of overlap can
impact employee
motivation to seek
promotions, training and
growth opportunities (how
appropriate or not an
overlap is depends on the
role type , the local country
context and legislative
environment)
Formula:
100 x (max of lower grade min of higher grade)
(max of lower grade - min of
lower grade)
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
experience associated with pay at different positions within a single salary range
These expectations provide context for goal-setting, performance management
and pay decisions
For example, the table below shows how an organization might map a position in
range to performance and skill development
Employee
Stage
Employee
Attributes
INVESTMENT
ASSET
Skilled
Highly Skilled
Uniquely Skilled
Minimal Experience
Experienced
Highly Experienced
Expert
Developing Skills
Unknown/Satisfactory Performance
Satisfactory/Good Performance
Strong Performance
Quartile 1
Salary
Range
Min
INTELLECTUAL CAPITAL
Quartile 2
Quartile 3
Quartile 4
Salary
Range
Max
Midpoint
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Job Leveling
Cost management
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Development and
Career Management
Performance
Management
Compensation &
Benefits
Succession
Management
Competency Model
Reward and Career Architecture
Job Leveling
A systematic process of determining the
relative value of jobs in an organization
Job Family Architecture
The infrastructure for organizing jobs
(job codes, job titles, functions, disciplines)
Inputs
Business Context
Reward and
Talent Strategy
Job Content
Employee Data
Market Data
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Executive
VP
SVP
EVP
CEO
Management
Supv
Mgr
Sr Mgr
Grp Mgr
Sr Grp Mgr
Professional/Expert
Entry
Intermed
Career
Specialist
Master
Expert
Technical Support
Entry
Intermed
Senior
Lead
Business Support
Entry
Intermed
Senior
Lead
Supv
Production
Entry
Intermed
Senior
Lead
The architecture serves as a foundation for organizing jobs and clarifying career paths
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Understanding the staffing model: what are the implications for job design, span of control,
and responding to changing business processes?
Workforce planning: what kind of talent will the organization need, and where should it
focus its recruiting and development efforts?
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Job leveling is
A systematic process of determining the relative value of jobs in an organization
A system for analyzing and comparing different jobs according to the overall responsibilities
and scope of each job
It is not concerned with the volume of work, or with the person doing it, or with current pay
Purpose
Establish a framework for:
Goal
A consistent, internally relevant and market-supported approach that can be understood by
everyone involved
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Management Role
SVP
EVP
Long-term
Incentive
Eligible
Management
Supv
Mgr
Sr Mgr
Grp Mgr
CEO
Sr Grp Mgr
Professional/Expert
Entry
STI Target
Career
Specialist
Master
Annual
Incentive
Eligible
Expert
Business Support
Entry
Intermed
Senior
Lead
Supv
Spot Award
Eligible
Production
Entry
Salary Grade
Intermed
Intermed
Senior
Lead
Low
High
10%
10%
10%
15%
20%
20%
25%
30%
40%
LTI Target
30%
35%
40%
50%
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
26
Local Market
Data
Common Leveling
Framework
Local Market
Data
125k
95,000 150,000
$155k
102k
85,000 125,000
$120k
85k
60,000 100,000
65k
40,000 80,000
$125,000 $225,000
$180k
$100,000 $200,000
$85,000 $175,000
Individual
Contributor
Manager
$60,000 $115,000
$95k
$40,000 $85,000
$60k
35k
22,000 52,000
$25,000 $50,000
$35k
15k
18,000 32,000
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Professional/Expert
Career
Specialist
Entry
Intermed
Before
Accountant 1
Accountant 2
Sr. Accountant
Staff Accountant
Before
Jr. Accountant
Accountant 3
Accountant 3
Accounting 4
Before
Account Jr.
Accountant
Mgr. Accounting
Accountant Mgr
Before
Sr. Accounting
After
Associate
Accountant
Master
Expert
Accounting Mgr
Principal Accountant
Sr. Principal
Accountant
Spec Acct
Sr. Associate
Accountant
Accountant
Sr. Accountant
2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Step 2:
Assign all jobs to the
framework
Hold job leveling
workshops using a
common leveling
methodology
Step 3:
Assign
employees to jobs
Map employees to
new titles and levels
Review by HR
generalists and line
managers
Step 4:
Design compensation
structure
Market analysis
Develop salary ranges
Establish short- and longterm incentive targets
Cost and impact analysis
Senior executive review
of recommendations
Compensation
management policies
Step 5:
Implementation
Implementation
plan
HR training
Manager training
Employee
communication
Ongoing
measurement
29
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Questions?
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Contact Information
Theresa Lynch
Consulting Director
Towers Watson
901 N. Glebe Rd.
Arlington, VA 22203
theresa.lynch@towerswatson.com
(703) 258 - 8216
Mitch Bardolf
Senior Consultant
Towers Watson
901 N. Glebe Rd.
Arlington, VA 22203
mitchell.bardolf@towerswatson.com
(703) 258 - 8111
31
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2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.